Ann Joo's margins to normalise, says Kenanga

TheStar Tue, Mar 01, 2022 09:57am - 2 years View Original


KUALA LUMPUR: Ann Joo Resources Bhd may no longer be able to enjoy the robust margins it had seen in 2021 as the uptrend in steel prices has ended.

Following the steel producer's recent FY21 earnings annnouncement, Kenanga Research said in a report that Ann Joo's earnings are expected to come off steeply due to lower steel average selling price (ASP) and rising costs.

In 4QFY21, Ann Joo's core net profit of RM16.5mil brought full-year core net profit to RM243mil.

The performance was below Kenanga's and consensus full-year estimates at 93% and 79% respectively.

"The underperformance is largely due to the steep fall in Chinese steel prices (from c.RM3800/t to RM3100/t) during the quarter (attributable to the property debt crisis) which led Ann Joo to write down RM34.5mil worth of inventories," said Kenanga.

The research firm said the normalisation in steel prices was attributed to the property debt crisis in China, which has negatively impacted the prospects for property demand and indirectly affect the prices for long steel products.

"We believe steel uptrend seen over the past year has ended and steel prices would not be able to surpass peak prices seen in early May 2021 - also because it is in the Chinese government’s interest to keep a lid on commodity prices in order to keep inflation levels in check," it added.

Kenanga maintained its FY22 earnings forecast on the back of ASP of RM3,000 per tonne.

It introduced an FY23 earnings estimate of RM94mil on ASP of RM2,950 a tonne.

It aso downgraded the stock to "underperform" from "market perform" with an unchanged target price of RM1.70, pegged to unchanged 0.75 tims price-book value.

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